Collateralization of Brands

Category: WTO Sub-category: Intellectual Property
Document type: article

The companies in India, exploring new avenues to gather funds have finally found one. They have now realised the real and monetary value of their brand and raise funds through Brand Collateralization.

Brand is an essential part of a business today. With Brand comes in a unique value to one's business that distinguishes it from the rest. Brand brings in 'brand loyalty' and retaining customers is as essential as converting the prospective ones. Brand resembles the growth and market hold of the company over the years which has brought about by innovation, adaptability, sustainability and mass acceptance over the years. Hence we see that Brand is established over a period of time. Intellectual Property in form of copyrights and trademarks protect Brand and its uniqueness.

An integral part of the business today and has added tremendous value to the same. 'Brand Valuation' is measuring the financial worth of a brand. It has it economic, accounting and its commercial use. The goal is both the ability to capitalize the intangible asset under consideration and set its value as a benchmark against which to measure future Brand-building activities.

Since the late 1990s, the need to establish valuations for Intangible Assets has driven the development various methods of valuation. These methods have attained formal recognition by the Financial Accounting Standards Board (FASB), and are included in the provisions of IFRS.

Essentially, there are four approaches to valuing a Brand, and one or more of them may be applicable in any individual instance as required. The four approaches are: Cost Approaches, Market Approaches, Income Approaches and Brand Strength Assessment Approaches.

Collateralization of Brands is nothing but using your brand name to raise leverage from banks and other financial institutions. The valuation of a Brand is made and if convinced the lending institution offers to accept the "Brand" as a security for the leverage amount. This is similar to Intellectual Property Securitization. The other forms of intangible assets were more popular in raising funds but eventually it is being realized by the companies that brand has some value! Often it is regarded as a part of IP securitization as when a brand is used as security, one actually uses the trademark or copyright. This is what practically establishes a unique brand for the company which has a value.

Kingfisher Airlines, a brand registered with the trademark office distinct from its wine brand. The previous year there was a separate valuation made of the brand value of the airlines, arising majorly from the $400 million Private Equity funds that the brand had accumulated. The brands worth was estimated approximately around Rs 1900 crores, forming an essential place in the company's balance sheet. This brand value has eventually been virtually used to raise credit.

Kingfisher Airlines have convinced State Bank of India (SBI) to obtain a credit of Rs 2000 crores using the Brand value as a collateral or say security. It is not a unique of its kind but a first instance where a public sector bank has accepted asset such as a Brand to issue credit, previously it was only done by private banks.

UB Group itself has leveraged brands to raise funds for recent acquisitions. The group's liquor business "United Spirits" offered some of its leading whiskies like Bagpiper and a few Whyte & Mackay brands as collateral to raise over Rs 6,000 crore from institutions such as ICICI Bank.

In India such instances have been seen previously as well. LT Foods (earlier LT overseas) had earlier raised leverage by using its rice brand "Daawat" as collateral to fund its acquisition of US based rice firm "Kusha Inc."

Globally, many companies have used their brands' value to open lines of credit. The most famous example is that of Walt Disney, which had done so in 1988 in the Japanese market to raise as much as $725 million.

Similar instances have been seen across the world over the past years.



Nature of Security

Amount Raised

Calvin Klein

Through brand collateralization in 1993, which was linked to future sales of its perfume products.



The securitization of copyright in a film portfolio to refinance outstanding credit facilities in 2002.



Securitization of its domestic and international trademark licences.


Athlete's Foot

From securitizing its franchise resources.


Burn Stewart Distillers

Against its whisky brands in 2008

£31-million from Belgium-based bank KBC

With companies eventually going out of tangible assets like land and building and so on for securities, intangible assets have taken their place. According to various reviews conducted across the world it is found that most of companies with a brand have over two-thirds of their assets intangible in nature. Hence the gates are open for companies to get credit more than ever.